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Questor: buy Saga for its healthy dividend and profits (and growing customer base)
Profits up, dividend up and debt down sounds like a pretty promising starting point for any potential portfolio pick. Travel-to-insuranceto-personal finance group Saga looks capable of providing long-term capital returns and income for patient investors.
Last month's full-year figures from the FTSE 250 company looked solid, as underlying pre-tax profit rose 6pc, debt fell 15pc and the dividend rose 18pc.
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Further improvements on all three counts look possible as chief executive Lance Batchelor and his team look to use Saga's brand to further develop its travel arm, as well as other services for its remarkably loyal customer base.
Demographic trends are playing into the company's hands, with life expectancies increasing and people looking to maintain a good standard of living as they prepare to enjoy their retirement. Insurance remains the bedrock of the company, making more than £200m in pre-tax income (before exceptionals) last year, compared with £15m from its travel business.
But the plan is to quadruple the travel earnings over the past five years, helped by the arrival of two new cruise ships. Saga also intends to roll out financial services and home care and retirement villages, among other areas of expansion.
This combination of initiatives underpins consensus earnings growth forecasts of 5pc for this year and 6pc for next. It may mean they turn out to be conservative.
A forward price-to-earnings ratio of 13.8 times and a prospective dividend yield of 4.1pc suggest the stock is not expensive either, given its long-term potential.
Questor says: Buy
Ticker: SAGA
Share price at close: 209p
UPDATE: Ashtead
We are going to bank a near-25pc gain in equipment rental expert Ashtead. The full-year results due on June 13 should look very strong, with the analysts' consensus looking for a 22pc jump in earnings per share and a 16pc hike in the full-year dividend to 26.1p.
Earnings forecast momentum remains healthy too, with consensus profit forecasts having increased by 11pc for this year, since we first flagged the stock at around the £12.70 mark last November.
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But the shares have gone up much faster, and a forward rating of 14 times for the year to April 2018 is pretty much in line with the broader UK market.
Investors in Ashtead have been boosted by the Trump trade, given that its American subsidiary Sunbelt generates more than 90pc of the company's profits.
The stock has made little progress in the wake of what were excellent third-quarter numbers last month and the share price looks like it is flattening off a bit. Some profit-taking seems prudent.
Questor says: Sell
Ticker: AHT
Share price at close: £16.25
UPDATE: PageGroup
Shares in recruitment expert PageGroup are advancing smartly following an encouraging first-quarter update earlier this month. However, a few sceptical brokers are turning more bullish, so it feels like a good time to lock in profits. Page's numbers, and those from peers Robert Walters and Hays, showed improved trading overseas and at home.
Net fee income growth at Page accelerated to 9pc on a constantcurrency basis, compared with increases of just 4pc in the last three months of 2016 and 1pc in the third quarter last year. The Americas led the way with a 15pc increase, but the UK played its part, as fee income came in flat. That compares with year-on-year declines of 2pc, 5pc and 7pc in the prior three periods.
The upswing in quarterly fee performance suggests analysts' forecasts for 0pc earnings per share growth this year already factor in a lot of gloom, but the share price may be ahead of them after recapturing all of the ground lost following last summer's referendum vote and more.
PageGroup shares are therefore no longer as cheap as they were, after a near one-third gain since we first discussed the stock back in late November. Forward price-to-earnings ratios of around 20 times for 2017 and 18 times for 2018 represent a premium to the broader UK market.
Questor says: Sell
Ticker: PAGE
Share price at close: 489.6p
Russ Mould is investment director at AJ Bell, the stockbroker
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